Income Tax Appellate Tribunal - Mumbai
Mohanlal K. Shah (Huf) vs Ito on 22 September, 2004
Equivalent citations: [2005]96ITD9(MUM)
ORDER
S.R. Chauham, J.M. This appeal by assessee for assessment year 1997-98, being in respect of order under section 171, is directed against the order of CIT (A), Mumbai, dt.. 24-9-2003, whereby the learned CIT (A) dismissed the assessee's appeal upholding the assessing officer's order dated 27-12-2002, rejecting the assessee's application dated 19-4-2002, under section 171 of Income Tax Act, 1961 (hereinafter referred to as the Act).
2. The facts, in brief, as ascertainable from the material on record, are that one Mohanlal Kishore Shah (Mohanlal K. Shah), Karta of Mohanlal K. Shah, HUF had acquired a plot No. 298, admeasuring 947 sq. yards on 12th Road, Khar, Mumbai-54, on lease from Government of Bombay an 20-10-1926. He constructed a two storied building thereon; the total constructed area being 1/3rd of the total area of the plot and this position of the structure remained there till sale of the same by Harish B. Shah on 17-4-1996, to M/s Narad Builders (P) Ltd.
2.1 Mohanlal K. Shah expired on 4-10-1954, leaving behind him his two sons, Bachubhai M. Shah, Dr. Ramesh M. Shah, widow Smt Taraben and two married daughters, Pushpa Chandrakant Parikh and Bindu Hansraj Ashar. The elder son of Mohanthi K. Shah 'Bachubhai, became Karta of the said Mohanlal K. Shah, HUF. Letter of administration regarding estate of Mohanlal K. Shah, including the above property of Khar, was granted by the Hon'ble Bombay High Court in favour of Bachubhai and Dr. Ramesh. The above property of Khar was shown as being the property of Mohanlal K. Shah HUF and WT/income-tax returns were being filed accordingly.
2.2 Apart from Khar property, the HUF owned two other properties in Village Sujitra, Taluka Petlad, Distt. Karia, Gujarat.
2.3 On the demise of MohanIal K. Shah, the property devolved upon Bachubliai, Dr. Ramesh and Smt.. Taraben in equal shares. Smt Taraben, widow of Mohanlal K. Shah, expired in the year 1984. In or about 1985, an agreement for family partition among Bachubliai, Dr. Ramesh and R.M. Shah, HUF was entered into but the same was not acted upon. Subsequently, Dr. Ramesh filed a civil suit in the Bombay city civil court against other coparceners. The suit was amicably settled and accordingly consent terms (consent agreement) were filed on 5-9-1985. Vide the said consent terms it was also agreed upon among all the members of HUF that all the properties including immovable properties described in the agreement of family partition dated 7-8-1985, were divided amongst members/coparceners by metes and bounds and that each member/coparcener will hold his/her share in the said property set out in prayer(c) to the plaint. However, the terms of the consent decree were not acted upon as regards the property at Khar, Bombay, and so it continued to be held by HUF.
2.4 Subsequently, dispute arose among coparceners when Dr. Ramesh wanted to sell his undivided right/interest in the said property. To settle the dispute, the matter was referred to the sole arbitrator, Shri S.K. Desai, retired Judge of Bombay High Court for arbitration.
2.5 The sole arbitrator gave his award on 24-9-1994, whereby he directed that right, title and interest of all the coparcener in the said property be released to one Mr. Harish B. Shah for the consideration payable to each coparcener as set out in the said award. A charge was also created on the said property for securing the payment to other coparceners. It is further incorporated in the award that after the payments are received by each coparcener, the charge created in favour of them will automatically be extinguished. The market value of Khar (Bombay) property was determined at Rs. 9 crores.
2.6 It was also contained in the award that if Harish B. Shah was not able to pay the amounts of shares of other members/coparceners, he will be at liberty to sell the said property and pay their shares out of the sale proceeds. Accordingly, Harish B. Shah sold the said Khar property to M/s.Narad Builders on 17-4-1996, for Rs. 9 crores and the payments of the shares of other members/coparceners (as per the direction given in the award) were made.
2.7 Some further facts, relevant in the matter, mentioned in assessee's write up styled as "facts" furnished on record before us on 26-7-2004, as contained in paras 5 to.10.thereof, are extracted below :
"5. The property under consideration was being occupied by 3 tenants and 2 encroachers.
(i) The first floor of the property was occupied by 1 tenant and the ground floor was occupied by 2 tenants.
(ii) The back side of the property attached to the building for which there was a separate entry was occupied by 2 encroachers.
6. A suit was filed in 1985, against Shri Bachubhai M. Shah by Shri Hasmukh N. Malkan for specific performance of a contract of sale of the property under consideration.
7. On 15-4-1996, an agreement was entered into between Shri Hasmukh N. Malkan and Shri Harish B. Shah in respect of the property under consideration whereby Mr. Malkan agreed to withdraw the suit filed by him on payment of a total sum of Rs. 83 lakhs (including 30 lakhs agreed to be paid by Shri B.M. Shah and balance Rs. 53 lakhs being payable by Shri H.B. Shah).
8. On 17-4-1996, Shri H.B. Shah executed an indenture as "vendor", for sale of the property for a total consideration of Rs. 9 crores to the "purchaser", Narad Builders (P) Ltd., all the members of the HUF being merely confirming party as they were having a charge over the property for the agreed amount in terms of the partition.
9. The 2 properties at Petlad, Gujarat, were sold off in the 1922. A copy of the sale agreement has already been submitted.
10. The facts of the case are detailed out in the order of the assessing officer (paras 3 to 8) as well as in the order of the CIT (A) (pp. 2 and 3). "
3. The assessing officer rejected the assessee's application filed under section 171 and did not accept the assessee's plea of there having had been effected a partition of HUF and the property at Khar, Mumbai; he concluded that the HUF, Mohanlal K. Shah, still existed and the said Khar property was held by the said HUF. The learned CIT (A) dismissed the assessee's appeal. Hence, the assessee-appellant has preferred this appeal before the Tribunal.
4. We have heard the arguments of both the sides and have also perused the records including the written submissions filed on record before us.
5. The assessee-appellant has raised 3, grounds of appeal before the Tribunal, but they all constitute single issue disputing the non-acceptance of partition of assessee-HUF under arbitration award dated 24-9-1994, vide assessing officer's order passed under section 171 of the Act.
6. The assessee's learned advocate, Shri Shashi Tulsiyan, has, referring to the provisions of section 171 of the Act, contended that as per the provisions of section 171(2) of the Act, when a claim of partition is made, the assessing officer is to conduct enquiry about partition from all the members of the family as to whether a partition has taken place. He has contended that during the assessing officer's aforesaid enquiry all the members of the family accepted that a partition of the assessee-HUF has taken place and that everyone has received his share in the HUF. He has contended that section 171(2) of the Act provides that a contention regarding partition having taken place can be made either before or at the time of making of the assessment for a particular year. He has contended that it is of no relevance here that the partition has taken place earlier. A claim for partition can also be made in the course of reassessment proceedings as assessment includes reassessment as per section 2(8) of the Income Tax Act and in this regard, reference has been made to M.R. Thammaiah v. Agrl. ITO (1984) 150 ITR 403 (Karn).
7. Referring to Explanation (a)(ii) to section 171, the learned advocate (Authorised Representative of assessee) has contended as under :
"(ii)(a) In this regard the assessee would like to point out as has been mentioned umpteen times during the course of the proceeding that the property was being occupied by three tenants since it had been given on rent in the 1930s only and it had also been encroached upon by two encroachers who did not want to leave the property amicably.
(b) Moreover, there were 12 coparceners and there was a single house property' consisting of a two storied building and appurtenant land.
(c) There was also a suit filedby Mr. Malkan for the specific performance of the sale contract entered into by Mr. Malkan and Mr. Bachubhai M. Shah.
Under such facts and circumstances, it was neither practical nor possible for the assessee to make physical division of the property. The genuineness of the claim can be verified by looking at the history of the matter into consideration, where several attempts were made to partition the property but due to circumstances mentioned above the coparceners were not able to carry ahead with the partition. Due to such circumstances the assessee had to resort to other means of partition as has been mentioned under ExpIn. (a)(ii) of the section.
(iii) Following this line of approach due to the circumstances mentioned above, the assessee-HUF was partitioned between the coparceners by an arbitration award dated 29-4-1994 and the Mumbai High Court passed a consent decree on the same on 5-1-2001. The decree of the High Court was sought later only to make the party buying the property (M/s Narad Builders) comfortable. It was in no manner a confirmation sought to validate the partition. The partition has already been carried out by the arbitration award, which was also accepted by all the members of the family."
8. Referring to various citations the learned authorised representative of assessee has made the following submission:
(i) In CIT v. Mahadeo Prasad Shyamsunder (1993) 203 ITR 168 (Cal), according to H.S. Gour in the Hindu Court, (1) Partition is the intentional severance of copardenary interests by members of a joint family, (2) An unequivocal expression of an intention to separate such interest may amount to partition, (3) Partition may be effected by the definition of right or by the division of property by metes and bounds.
(ii) In Roshan Singh v. Zile Singh AIR 1988 SC 881, 886, the Supreme Court had held, "partition, unlike the sale or transfer which consists, in its essence, of a single act, is a continuing state of facts. It does not require any formality, and, therefore, if parties actually divide their estate and agree to hold in severalty, there is an end of the matter.
(iii) In CET v. Baldeo Dass Rameshwar (1984) 147 ITR 473 (Raj), it has been held that where the coparceners executed a writing with a view to effect partition and agreed to hold some of the joint properties in defined shares as separate owners, such a writing operates in law as a partition of the entire joint family property, though the property may not be physically dividend.
(iv) In Tatavarthi Rajah v. CWT (1997) 225 ITR 561, 569 (SC), a partition suit was filed by the widow of one of the three sons of one N. There was a comprise, under which she was tentatively allotted certain items of property. The suit finally ended in a final decree passed on 16-3-1961. It was held that it was only on 16-3-1961, that it could be said that there was a partition among the members in definite portions. On a rational interpretation of the above judgment, one can gather that the partition took place on the day when it was finally decided. Unlike the above case where the final compromise was reached during the suit, in our case the final decision regarding the partition of the HUF was taken on 24-9-1994, by the arbitration award and the decree which was sought from the Bombay High Court was a mere formality which was carried out to make the person buying the property feel comfortable. So, we can say that the partition of Mohanlal K. Shah, HUF finally took place on 24-9-1994.
(v) Partition is a severance of joint status and as such it is a matter of individual volition. All that is necessary, therefore, to constitute a partition is a definite and unequivocal indication of his intention by a member of a joint family to separate himself from the family and enjoy his share in severalty (Mulla's Hindu Law, 17th edition, Vol. I, p. 517) What form such intimation, indication or representation of such interest should take would depend upon the circumstances of each case (Kalyani v. Narayanan, AlR 1980 SC 1173, Patel Chikkathirnme Gowda v. Agrl. ITO (1983) 140 ITR 434, 436 (War) 1 Keeping the above judgment in mind, the form taken to intimate such an intention of partition by the members involved is the arbitration award.
(vi) The partition of the HUF property under the Hindu Law had been duly carried out by the arbitration award, which was accepted by all the members concerned. The point of difference between the acceptance of partition under Hindu Law and the Income Tax Act is the requirement created under the Income Tax Act where there has to be an actual physical distribution of the property and under circumstances where it is not possible then such division as the property admits of. As has already been shown earlier, the physical distribution of the property was not possible. However, the HUF property was distributed in such a manner which it admitted of. This requirement under the Income Tax Act was also fulfilled by the assessee.
(vii) In Kalloomal Tapeswah Prasad (HUF) v. CIT (1982) 133 ITR 690 (SC), the High Court held that though the 18 items of property could not be divided in 10 shares without destroying their utility, they could be apportioned among the 10 members and the difference in allocation could be equalised by payment of cash amount from one to the other. This decision of the High Court was upheld by the Hon'ble Supreme Court.
(viii) In deciding whether a partition has, in fact, taken place, the circumstances that the partition has been effected in unequal shares is an irrelevant consideration. If the partition is unequal and unfair it is open to the coparceners, if they are major, to repudiate the partition; but if they are minors, it is open to them to avoid that partition by appropriate proceedings after they attain majority. Such a partition is good until it is set aside. It is not void and it is not without effect. This right of avoidance based on the inequality of the shares is a personal right of the affected member and cannot be exercised by others, nor by the Income Tax authorities. (M.S.M.M. Meyyappa Chettlar v. CIT (1950) 18 ITR 586, 596 (Mad) and CED v. RantUal Trikainlal (1976) 105 ITR 92, 101-102 (SC) 1
(ix) The very fact that a specified amount was provided for each member of the family in the award is proof enough that the property stood divided on the date of the award and there was no further claim of share by any member of the family in the HUF property. In Joint Family of Udayan Chinubhai v. CIT (1967) 63 ITR 416, 421 (SC), it has been held that an order recording partition could be made only if the properties of the joint family were partitioned in 'definite portions', that is, the properties were physically divided if they admitted of such division, otherwise in such division as they admit of.
(x) In CIT v. Goidndlal Mathurbhai Oza (1982) 138 ITR 711 (Guj), a partial partition in respect of one of the properties, being land of the HUF, was effected by a partition deed dated 12-9-1966. The land was earlier, under an agreement dated 25-9-1963, agreed to be sold by the Karta to a third party for a consideration of Rs. 2,67,540. In the partition deed, the members agreed to allot the whole land to the Karta, who, in his turn, agreed to pay Rs. 2,22,950, being the 5/6th share of the sale proceeds to the other five members of the family. The amount so agreed to be paid was in fact paid. It was held that a valid partial partition was effected. It was also held that the transaction in question was not a "sale" as contended by the revenue.
(xi) In CIT v. Vajulal Chunilal (1979) 120 ITR 21 (Guj), it has been held that even otherwise, a partial partition in respect of an asset belonging to the family can validly be effected by giving over that asset to one of the coparceners, who, in his turn, compensates the other members by paying cash equivalent to their respective shares in that regard.
(xii) The CIT (A) has also attacked the assessee on the ground that the arbitration award was not actually acted upon by the coparceners by executing legal documents transferring and assigning their respective rights, interests and titles in favour of Shri Harish B. Shah. The absence of duly'executed deed in this regard was pointed out. In this connection, discussions made by reputed authors Chaturvedi & Pithisaria, in their famous book "Income Tax Law 5th Edn. Vol. 4" at p. 5673, is discussed-It is perfectly true that in ordinary Hindu Law a partition involves no conveyance and no question of transfer arises when an that happens is a severance in status and the common holding by the coparceners is converted into separate title of each coparcener as tenant in common, nor does subsequent partition by metes and bounds amounts to transfer (CED v. Kantilal Trikamlal (supra)). Law is well-settled that a partition of the joint family properties can be effected by an oral agreement irrespective of the value of the immovable property. A memorandum may be later executed recording the factum of the partition having been earlier effected. Such memorandum does not by itself create any jural relationship among the parties. This sort of memorandum is not hit by section 17(1) of the Registration Act, 1908, and is not compulsorily registrable.
(xiii) With regard to the issue raised by the assessing officer that the entire award is drafted with the sole intention to avoid capital gains tax on ultimate sale of the property and placed reliance on the judgment of the Supreme Court in McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), it is got to be said that there are ample evidence that the members of the assessee-HUF had been cherishing the intention of having a full partition of the property of the HUF since a long time and earlier attempts were not successful due to practical reasons already mentioned. Finally, due to the persistence of Dr. R.M. Shah to sell of his undivided property in the Bombay, final resort to the arbitration process was made which resulted in the final division of the property in a manner which is also according to the requirements mentioned in the Income Tax Act. Moreover, the genuineness of the arbitration proceeding conducted by a retired Judge of the Bombay High Court cannot be challenged by the department even if the purpose of the partition was to avoid (not evade) capital gains, etc. The genuineness of the award has also been accepted by the Bombay High Court by a decree passed by it. Reliance placed on Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC).
(xiv) Regarding the properties in Petlad, Gujarat, both the properties were partitioned in 1985 by the settlement reached between the members of the HUF. It was only in respect of the Bombay property that the consent decree was not acted upon. Both the properties in Petlad, Gujarat, were later sold in 1992. Sale agreement regarding both the properties has already been filed. All the members accept that these properties were sold and none of them have made any claim towards it. The sale considerations received from the sale of these properties were so meager that no taxable. income accrued from them and hence no return was filed.
9. The learned authorised representative of assessee has accordingly contended that under the arbitration award dated 24-9-1994, which was accepted by all the eleven members/coparceners of HUF, there had been effected the partition of the then existing Mohanlal K. Shah, HUF and so in the previous year relevant to assessment year 1997-98, the assessee-HUF did not exist. He has accordingly contended that the assessment impugned herein is bad in law, which, in turn, needs to be annulled.
10. The learned CIT-Departmental Representative, Shri K.L. Maheshwari, has contended that the assessing officer has passed the impugned order under section 171 holding that the partition of Mohanlal K. Shah, HUF has not taken place in accordance with the provisions of the Income Tax Act. He has contended that as regards partition, or rather a legally valid partition, there should be physical partition of the HUF property fully and then only the partition is acceptable under Income Tax Act. Referring to section 171 (1) of the Act, he has contended that for the purposes of' the Act, an HUF is deemed to continue as HUF unless and until an order under section 171(1) of the Act is passed holding that a partition of HUF has taken place. Referring to Explanation (a)(i) to section 171, he has contended that physical division of property should be there or otherwise, without physical division of the joint family property simply because of there being an, agreement for partition or an arbitration award for partition of the same, there cannot be deemed to be an acceptable partition under Income Tax Act. He has contended that merely defining the shares or mere allocation/allotment of shares in the HUF property without physical division by metes and bounds there cannot be a legal partition as recognised under section 171 of the Act. He has contended that earlier agreement for partition had been entered into among members of assessee-HUF in 1985, but the same was not acted upon, so in effect there was no partition at that time.
11. The learned CIT-Departmental Representative has contended that at the time of earlier agreement for partition in the year 1985, there were three properties, one at Khar, Mumbai, and two at Petlad, Gujarat. He has contended that in the year 1985, there could not have been even a partial partition; there is no evidence of sale of two properties of Petlad, Gujarat..He has contended that with the insertion of sub-section (9) of section 171 with effect from 1-4-1980, there cannot be a partial partition after 31-12-1978, and that if at all a claim of partial partition having been place is made after 1-4-1980, neither shall any such claim be enquired into nor shall any finding thereon be given and if at all any such finding is given, the same shall be null and void in view of the provisions of section 171(9) of the Act.
12. Referring to p. 110 paper book and back of p. 110 paper book, being internal pp. 5 and 6 of the plaint, he has contended that as per clauses 3 and 4 of the-plaint on above pages there were two properties in Gujarat specified on p. 110 paper book and its back. Referring to para 4 on p. 125 paper book, being internal p. 7 of Ex. B, there were two properties at Daswala Khadki and near Khodiyar Mata. He has contended that in the second schedule mentioned on pp. 127 and 128 paper book, there is mention of two properties and that the area of land, etc., and other details are all specified there.
13. He has referred to para 10 on p. 15 of learned CIT (A)'s order and contended that the learned CIT (A) has mentioned that apart from Mumbai property, there is also a property situated at Khadki in village Sojitra and property situated near Khodiyar Mata in village Sojitra in Karia, Gujarat, being survey No. 33 and 16 respectively. He has also contended that the sale deed filed before learned CIT (A) related to only one property being at survey No. 33 and not 33 and 16 both. He has accordingly contended that there is no evidence of sale of the second property at Petlad, Gujarat, nor is there any evidence of the same having been divided by the assessee-HUF. He has contended that thus the entire property of HUF having not been disposed off by the settlement/award/decree, there is no complete partition; and so there being no complete partition, order under section 171 cannot be passed for acceptance of partition.
14. The learned CIT-Departmental Representative has contended that even assuming that both the other properties of Gujarat have been disposed of and there remained only one property at Khar, Bombay, still an order under section 171 of Income Tax Act accepting partition cannot be passed for there being no valid/proper partition inasmuch as no physical division of the Khar property has been done. He has contended that the assessee's learned Authorised Representative's argument has been that when physical division not possible, such division of the property as it admits of may be done but that argument is not tenable inasmuch this property at Khar Bombay was capable : of physical division but no physical division was done, and only one coparcener/member of HUF retained the property and paid cash amounts to other coparceners/members, and so it is not a proper partition in law. He has referred to CIT v. Venugopal Inani (1999) 239 ITR 514 (SC) in this regard. He has contended that the law requires that the tax should be paid on sale consideration as capital gains tax, either it should be paid in the hands of HUF or in the hands of individual. He has contended that in the instant case the tax, that is, capital gains tax, is not being paid by either appropriately, i.e., not on the whole of sale consideration. He has contended that there is no provision in the Income Tax Act that if any member of HUF received part of sale consideration, then that part of sale consideration should not be taxed in his hands. He has contended that the department's plea is that it should be taxed either in the hands of HUF or in the hands of individual recipient members. Referring to section 47(1) he has contended that the coparceners themselves did not offer their respective receipts of sale consideration in their respective returns by taking shelter under section 47(1) as has been observed by assessing officer on p. 12 of the assessment order. He has contended that assuming Rs. 90,000 to have been the value of the property, then only an amount of Rs. 90,000 alone is required to be divided among the members of HUF and it is that amount which can be exempt, that is, the value of the interest of individual coparcener and not the entire sum of Rs. 9 crores.
15. Citing ITO v. Smt. N.K. Sarada Thampatty (1991) 187 ITR 696 (SC) the learned Departmental Representative has contended that even if a civil court's decree is passed for partition but if there is no actual division of the property by metes and bounds, then the HUF cannot be said to have been partitioned and the income from HUF properties remains the income of HUF, and not the income of individuals, as has been held in the cited decision. Arguing on the point as to whether physical partition was possible or not, the learned Departmental Representative has referred to backside of p. 111 paper book, being internal p. 8 of the plaint, and contended that in clause 7 of the plaint it has been averred that the Bombay property is capable of division by metes and bounds and for that purpose they appointed Shri Hussaini T. Maimmowala, the architect, to divide the said Bombay property among the parties by metes and bounds..He has also referred to clause 3 on backside of p. 134 paper book, being internal p. 2 of consent decree dated 5-9-1985, of Bombay city civil court and contended that in clause 3 also the Bombay property has been mentioned as having been divided by metes and'bounds amongst the parties to the suit, and that more particular description of the property has been given in first and second schedules to the agreement of family partition dated 7-8-1985. He has referred to paras 18, 19, 20 and 23 on pp. 5 and 6 of assessment order and contended that the said agreement for partition dated 7-8-1985 was not acted upon. He has contended that the assessing officer has also observed that the Bombay property was in fact physically divisible. He has contended that the contention of the learned authorised representative of assessee that due to this property being in the occupation of tenants and there also having been encroachments the property was not capable of being physically divided, was far from the facts. He has contended that prima facie this property is capable of being physically divided and that is why in the year 1985, the members of HUF agreed for dividing this Bombay property vide their partition agreement dated 7-8-1985, though for some reason or the other the partition agreement was not actually acted upon.
16. The learned Departmental Representative has contended that now it is to be considered as to whether arbitration award dated 24-9-1994, passed by the sole arbitrator can be treated as a partition or a partition deed. He has contended that the matter was referred to the sole arbitrator for arbitration on 31-8-1994, and that the arbitration award passed by the sole arbitrator on 24-9-1994, is placed on pp. 137 to 154 paper book. Referring to paras 10 and 11 of the award on pp. 144 and 145 paper book he has contended that in this award, arbitrator has provided mechanism as to how the partition should take place. He has contended that there should be a separate deed and the members other than Harish B. Shah should release their shares in that partition deed-or separate release deeds in favour of Harish B. Shah. He has contended that the award is only providing mechanism for partition but the award itself is not a partition. He has contended that after the passing of the award by the arbitrator, there should be executed some further agreement among the members to the effect that in pursuance of award they have so divided.
17. The learned Departmental Representative has contended that the amount, being in respect of respective shares of other members of HUF (other than Harish B. Shah), was paid not by Harish but by M/s Narad Builders directly to those other members. He has also contended that even the sale deed of this Bombay property has been signed by all the coparceners. He has contended that if at all partition had taken place vide award on 24-9-1994, then there was no necessity for all coparceners/members of HUF to sign the sale deed when the property belongs to one member Harish only and not to all members of HUF. He has contended that the amount has been paid by M/s Narad Builder to members of HUF in the application of sale proceed amount which belongs to HUF and not as a division of HUF property as claimed by assessee.
18. He has contended that assuming that the arbitration award is treated as partition deed, then also as per section 17 of Registration Act, it is compulsorily registrable as it involves immovable property and without registration it cannot be considered as admissible evidence. He has contended that section 34 Bombay Stamp Act requires stamp of requisite/required amount to be affixed. He has contended that as the award is not on required stamp paper, so it cannot be considered as a partition deed. He has accordingly contended that the arbitration award is, therefore, only a family settlement or a family arrangement and nothing else. He has cited CGT v. D. Nagrirathanam (2004) 266 ITR 342 (Mad). He has contended that it should be followed by execution of any written agreement or document and there should be evidence that it has been followed/given effect to, that is, the mechanism given in award has been followed. He has contended that such an evidence is not there on record. He has contended that as per Arbitration Act, 1940, the same is applicable in the matter and as per section 17 of the said Act judgment cited is record for the award rule of the court. He has contended that in this case the assessee had applied to the court for making the award a rule of court and the High Court gave judgment dated 5-3-1998. Referring to p. 3 of the said judgment of the High Court, he has contended that in the year 1998 also coparceners were there as High Court is referring to "coparceners" and giving directions, and thus HUF was continuing till 1998, and no partition till then had taken place. In this regard, he has also drawn our attention to p. 7 of the judgment of the High Court. Citing Delhi Auto & General Finance (P) Ltd. v. TRO & Ors. (1999) 236 ITR 325 (SC), he has contended that the effective date of transfer is 5th March, 1998, being the date of High Court's judgment whereby the arbitration award was made the rule of court. He has accordingly contended that the award dated 24-9-1994, is not a partition deed. He has contended that before High Court decree/judgment of 5-3-1998, there is no partition. He has contended that the learned CIT (A) has confirmed the assessing officer's order after discussing the relevant aspect in para 10 onwards in his order. He has contended that it should also be entered into record that the property has been transferred from HUF to one single coparcener under partition.
19. He has contended that out of two properties at Petlad, Gujarat, only one property has been sold and the other one not sold yet and so also an order under section 171 accepting/recognising partition cannot be passed.
20. He has contended that it has to be examined as to whether the obtaining of arbitration award, etc., is a tax avoidance scheme on the part of assessee, as has been considered by assessing officer and CIT (A). He has contended that for that purpose, we have to see the substance and not the form. He has contended that in the instant case HUF property has been sold and sale proceeds have been divided before partition and the intention was to avoid tax. He has contended that valid partition can be there but when requirements of the provisions of section 171 of the Act have not been complied with in this case, so there cannot be treated to have been a valid acceptable partition under section 171 of the Act. He has contended that the onus is on assessee to prove that a valid partition has taken place. Citing Mid East Portfolio Management Ltd. v. Dy. CIT (2003) 87 ITD 537 (Mumbai)(SB), he has contended that the principle of McDowell & Co. Ltd. v. CTO (supra) is applicable in the case. He has contended that the property has been sold for Rs. 9 crores whereas they are paying tax only on Rs. 2.25 crores.
21. The learned CIT-Departmental Representative has contended that if an arbitration award is followed by decree of court, then no stamp fee nor registration is required. Citing CIT v. Ghanshyam Das Laxmi Narain (1974) 95 ITR 438 (Pat), he has contended that the date of registration of the partition deed will be the date of partition. He has also cited ITO v. Naresh Batra (HUF) (1996) 58 ITD 23 (Chd). He has contended that the partition provided in section 171 of the Act is to be construed strictly and it is not the same thing as partition under the Hindu Law. In his support, he has cited CIT v. Keshawal Laflubhai Patel (1965) 55 ITR 637 (SC) and CIT v. Prem Bhai Parekh & Ors. (1970) 77 ITR 27 (SC). He has contended that there should be no confusion about severance of status with actual allotment of shares. He has contended that section 171 of the Act is a mandatory provision and so the assessing officer has to follow it strictly; and no liberal interpretation can be given to section 171 of the Act.
22. In rejoinder, citing Roshan Singh v. Zile Singh AIR 1988 SC 881 and Kalyani (Dead) by LRs. v. Narayanan AIR 1980 SC 1173, the learned authorised representative of assessee has contended that registration of award is not necessary and that giving of notice by Dr. Ramesh, severance of status was caused and thereafter only formalising of the severance along remained to be done which was subsequently done. The learned authorised representative of assessee has contended that as per the Explanation to section 171 of the Act for a valid partition of HUF, there has to be physical division of the HUF property and that mere severance of the status is not enough. He has contended that what the aforesaid Explanation implies is that an agreement of partition has to be followed by such further steps as to confirm the factum of partition among the members of HUF having taken place as per their specified shares in the property and that only then it can be said that the partition has taken place by metes and bounds.
23. Elaborating his contention further, the learned counsel for assessee has submitted as under :
"For a valid partition, physical division of the property means that if coparceners want to take physical shares of that property then simple severance of status or defining of their shares will not be enough. After defining of shares that property has to be actually divided into physical divisions as per shares of the coparceners. If that property cannot be divided physically as per the shares of the coparceners due to the property not admitting such division because of the property not being capable of such division, then partition of that property may be made in some other suitable manner. In other words, when property is capable of being physically divided into divisions as per shares of the coparceners then it must be actually so divided into physical parts according to the shares of the coparceners. Such a division would amount to division by metes and bounds. Assuming there are 4 coparceners of an HUF and all the 4 coparceners mutually agree that 2 of them would take physical portions of one particular property and other 2 will not take physical portions of that particular property, then it is not necessary to make 4 physical divisions of that particulars property. It will be a valid partition under law if only 2 physical divisions of that property are made and each of the 2 members is given physical division of that property and the remaining 2 members are given either some other property or some other compensation or cash component equivalent to their shares in the said property. These 4 members may agree to make a partition in such a manner that 1 member alone may take that particular property and remaining 3 members may take some other property or compensation in money or in some other form as per their shares in that particular property of the HUF This will also be a physical division of the property by metes and bounds. "
24. The assessee's learned advocate, Mr. Shashi Tulsiyan, has contended that the Income Tax Act nowhere required that for a physical division of the HUF property, the property has to be broken up into pieces, that is, into as many parts as are the members/coparceners of the HUF so as to give one part to each of them as per his share even when some of them do not want any part of this property and want some other property or cash amount as per their shares, depending on their needs and wishes. He has further contended that for a partition to be validly carried out under the Income Tax Act the shares of the different members of the family have to be divided as per their specified shares in the property and each one of them should be allotted one's shares in it. He has cited two examples given below to illustrate his elaboration on the issue.
Example I : If there is an HUF which owns Rs. 5 lakhs worth of property, Rs. 5 lakhs worth of shares, Rs. 5 lakhs worth of cash and a business worth Rs. 5 lakhs and assuming there are 4 coparceners A, B, C and D, each one of whom have 1/4th share in the HUF property, then there is no need that each and everything owned by the HUF has to be divided in 1/4th share to every one of the coparcener. The coparceners are free to take their part of the specified s are in whatever m they want. It is upto the free will of the coparceners to decide as to in which form they want their share or as to what they want from HUR It is a matter of agreement among the coparceners. They may make a partition under which A takes Rs. 5 lakhs worth of property, B takes Rs. 5 lakhs worth of shares, C takes Rs. 5 lakhs worth of cash and D takes the business worth Rs. 5 lakhs. This will be a valid partition under law.
Example II : There is an HUF which has 2 properties, 1 an agricultural land in the rural areas and a flat in the city. There are 2 coparceners, 1 of them lives in the rural area and is uneducated and earns his living by farming. The other coparcener is educated and works in the city. Now, when the HUF is divided the coparceners : can take their shares in the properties as per their wishes and needs, i.e., the coparcener living in the rural area may take the agricultural land and the coparcener living in the city may take the flat in the city. This will also be a partition by physical division that is division by metes and bounds.
25. He has contended that in the instant case the property was divided by an arbitration award dated 24-9-1994. As per the arbitration award the property at Khar was handed over to Harish B. Shah and Harish B. Shah has made cash payments to the other members of the family as per their shares in the property. All the members accept that the partition had taken place. All the members accept that they have received their shares in the property and none of them have made any claims contrary to it. No dispute regarding partition either before the department or any court of law. In fact, when enquiry under section 171(2) was conducted, 9 years after the partition all of them have confirmed the partition. Moreover, the assessing officer has not raised even a whisper to challenge the partition.
26. He has contended that the date on which award is passed by the arbitrator accepting the partition, is the date on which partition took place. He has contended that there is no provision in the Income Tax Act which makes the registration of arbitration award compulsory for its acceptance. He has contended that what is necessary is that effect should be given to the award of partition so that there is execution of the directions defining the shares of the members of the HUF in the award. He has cited CIT v. H.K. Sehgal (1991) 190 ITR 131 (Del) in his support.
27. regarding his contention that the fact that the partition of HUF has actually been accepted upon, as per the arbitration award, he has contended that the same can be seen from the evidence on record being-
(i) Agreement for sale
(ii) No objection certificate under section 269UL(3)
(iii) Recital of sale.
28. He has contended that NOC under section 269UL(3) (p. 176 paper book) is issued after investigation of title on application made under Chapter XX-C. He has contended that Form No. 37-I was filed by Harish B. Shah in February, 1995, which was accepted by issuance of NOC by Appropriate Authority.
He has further elaborated his contention as under :
"On reading the agreement for sale we can see that Harish R. Shah was the vendor and the rest of the coparceners were merely the confirming parties since they had a charge over the property. The department itself has issued no objection certificate under section 269UL(3) on 15-5-1995, for the sale of the property under consideration accepting Harish B. Shah as the vendor selling the property. In the recital of sale again Harish B. Shah has again sold the property to M/s.Narad Builders as the owner of the property. All these things go to show that the partition of the HUF as per the arbitration award had been duly carried out and partition had been given affect to fulfilling the criteria laid down under section 171."
29. He has contended that the learned Departmental Representative's citation (1991) 187 ITR 696 (SC) (supra) is distinguishable on facts inasmuch as in that case there had been no physical division of HUF property as per the decree of the court. Similarly, he has contended that the learned Departmental Representative's citation (1999) 239 ITR 514 (SC) (supra) is distinguishable inasmuch as in that case though partial partition of HUF had taken place under the Hindu Law, but the members of HUF continued to enjoy the property jointly which is against the requirement of Income Tax Act. He has contended that the learned Departmental Representative's citation (1999) 236 ITR 325 (SC) (supra) is with regard to an outsider and has no application in the instant case as here the parties are coparceners inter se. He has contended that (1991) 190 ITR 131 (Del) (supra) is the relevant citation applicable in the matter.
30. He has contended that the deed of sale (p. 156 paper book) is dated 17-4-1996, and in the said sale deed Harish B. Shah is vendor, M/s. Narad Builders is purchaser and outgoing coparceners are confirming parties because charge in their favour was created by arbitrator in his award for receipt of partitioned sum.
31. Regarding the properties at Petlad, Gujarat, the learned authorised representative of assessee has contended that both the properties were sold and has made further submission as under :
"In his order the assessing officer (p. 11 of the paper book) accepts that there were 2 properties in Gujarat bearing survey Nos. 33 and 16 (actually correct survey numbers are 33 and 60). In the agreement of sale, a copy of which has already been submitted, it shows that the two properties bearing survey Nos. 33 and 60 were sold off. So far as the order of CIT (A) (p. 66 of the paper book) is concerned the CIT (A) has mentioned that property bearing survey Nos. 33-60 is sold and the property bearing survey Nos. 16 was not sold. The assessee fails to understand from where did CIT (A) got the survey No. 16 when there were only 2 properties bearing survey Nos. 33 and 60. So, the contention of the department that the properties in Gujarat were not sold was wrong as can be seen if one looks at the agreement of sale of the concerned property. Further, even backside of page No. 127 of the paper book (which was even referred by the learned Departmental Representative) states about only two properties being survey Nos. 33 and 60 at Petlad, Gujarat. The sale deed also shows sale of two properties, i.e., survey Nos. 33 and 60. The CIT (A) admits sale of survey Nos. 33-60. Assessing officer also has mentioned about the properties, i.e., survey No. 33 and 16 (where 16 should be read as 60 due to typographical error). The CIT (A) has wrongly carried an impression that there was one more property bearing survey No. 16 which is not sold."
32. We have considered the rival contentions, relevant material on record as also the cited decisions. Considering the rival contentions together with the facts and circumstances of the case, we find that as per the contentions of the assessee's learned advocate, there can be two categories of partition of HUF or Joint hindu. family-
(i) Doctrinal partition of HUF under conventional Hindu law.
(ii) Recognisable or acceptable partition of HUF under Income Tax law.
33. As regards the partition falling under category No. (i), a partition is a mere severance of joint status, that is, severance of coparcenary status or HUF status and a numerical division of property, that is, defining the shares of respective coparceners in the joint property. It is a matter of individual volition and an unequivocal expression of an intention by a member/coparcener of joint family/coparcenary to separate himself from the family and enjoy his share in severalty is enough to disrupt the status of HUF and the same constitutes partition under the conventional Hindu Law. In this category there may be mere defining/specifying of shares of individual coparceners/members of HUF in the joint property and that may be enough to constitute a partition, though the same may or may not be accompanied by actual physical division of the joint property, whether by metes and bounds or otherwise. Once the shares are defined, whether by agreement, oral or written, between the parties or by an arbitration award or by an order/decree of the court or otherwise, the partition is complete. After the shares of individual members/coparceners having been so defined, the members/Coparceners may physically divide the property by metes and bounds, or they may continue to live together enjoying the property in common as before but thenceforth the property ceases to be joint and the members/coparceners will be holding that property as tenants-in-common. Under this concept of partition under conventional Hindu Law, there can be a partition/severance in the case of a business as a going concern, just by defining or specifying of shares in the accounts without any physical division of the business.
34. Before we proceed to consider the partition falling in category No. (ii) mentioned above, we may note that a partition under Hindu Law can be with respect to one or more members of HUF only, leaving the remaining members joint, or it can be with respect to one or more properties of HUF only, leaving the remaining properties of the HUF as joint, or the partition can as well be partly or wholly with respect to both members as well as property.
35. As regards the partition falling in category No. (ii) mentioned above, a partition, in order to be recognisable or acceptable under Income Tax law, or to be more specific, under section 171 of Income Tax Act, 1961, has to be a complete partition with respect to members as well as properties of HUF in view of Explanations (a) and (b) to section 171 of the Act, has to be a severance in respect of all the members/coparceners of HUF as also in respect of all the properties of HUF If some of the members remain joint or some of the properties remain joint, then such a partition will be only a "partial partition" as provided in ExpIn. (b) and will not be accepted or recognised as partition under section 171 of the Act and the HUF will continue to be assessed in the status of HUF as provided in section 171(1) of the Act.
36. A mere severance of joint status of family or of HUF may constitute a partition under conventional Hindu law but in a partition falling in category No. (ii) mentioned above, the Income Tax Act, 1961, has further more requirements. In order that a partition of HUF may be accepted/recognised as such under section 171, an expression or manifestation of intention by any member/coparcener to separate himself from HUF/coparcenary will not, by itself, be sufficient to bring the matter of jointness to an end, that is, it will not amount to partition of HUF or severance of jointness, nor will it suffice to have the partition of HUF to be complete with respect to all the members of HUF and an the properties of HUF, but it will further be necessary that there should be physical division of the HUF property by metes and bounds. A physical division of the income without physical division of property, which is capable of physical division, will not constitute a partition. If under an alleged partition of HUF property, the shares of individual members in the property are only defined or specified but actual physical division or division by metes and bounds of property in accordance with the defined/specified shares of the respective members/coparceners does not take place, then no partition, acceptable/recognisable under Income Tax Act, 1961, can be said to have been effected. Thus, in order that there should be a valid partition of HUF, acceptable under section 171 of Income Tax Act, 1961, there should be actual physical division of the property as per the defined/specified share allotted to each individual member out of the HUF property.
37. In (1999) 157 CTR (SC) 476 : (1999) 239 ITR 514 (SC) (supra), it has been held as under :
"If the properties belonging to an HUF are not partitioned at all by dividing it among the members, even though capable of division, then the members of the family cannot say that so far as those properties are concerned they stand dividend. The basic principle appearing from the section itself is that in order to claim partition in respect of any property, division of the property is a prerequisite. The HUF cannot say that it stands divided in respect of the property and at the same time enjoys the property jointly."
38. In (1990) 89 CTR (SC) 154 : (1991) 187 ITR 696 (SC) (supra), it has been held that the X must prove that partition of HUF was effected by court decree or agreement and was followed by actual physical division of the property in accordance therewith. The Hon'ble Apex Court held as under :
"Since the civil court decree was a preliminary decree and no final decree had been passed and no actual partition had been effected and no physical partition by metes and bounds had taken place in pursuance of the decree of partition, the status of an HUF continued for purposes of assessment."
39. In (2004) 266 ITR 342 (Mad) (supra), it has been held that a family arrangement/settlement may be oral in which case no registration is necessary. It has also been held that if the terms of family arrangement have been reduced to writing, then the document containing terms and recitals of a family arrangement is to be distinguished of a document being a mere memorandum prepared after the family arrangement had already been made for the purpose of record; such a memorandum is not compulsorily registrable.
40. In (2003) 87 ITD 537 (Mum)(SB) (supra), it has been held as under :
"The observations made in McDowefl's & Ltd.'s case (supra), regarding tax evasionlavoidance are weighty observations of the Apex Court and even if they do not constitute the ratio of decision; they are indicative of approach to be adopted by lower courts, which includes Tribunal to the question of tax avoidance; they have to be followed as guiding principles while deciding as to whether there was tax evasion or not."
41. However, considering the legal position as emanating from the cited decisions as also the celebrated commentaries, we find that the elaboration made by the assessee's learned advocate, Shri Shashi Tulsiyan, as to how a physical division of property of HUF should take place in order that there is a valid partition, acceptable/recognisable under Income Tax Act, 1961, has substance. We agree with the contention of the learned Authorised Representative of assessee that for a partition of HUF to be valid/acceptable under section 171 of the Income Tax Act, it is not always essential that each of the properties of HUF should be broken into pieces/portions, nor that each property should be broken into as many shares as are the sharers or members of HUF, so as to fall within "division by metes and bounds". In our considered opinion, what is meant by the expression "physical division of property by metes and bounds", in the context of partition of HUF, is that there should be actual physical division of the property as per defined/specified shares allotted to each member of HUF under partition, if that property admits of such physical division and if the property is of such nature that it does not admit of such physical division, then such division as the property admits of. However, it will very much depend upon the sweet will of the members of HUF to mutually agree as to in what manner they divide the property so as to allot separate shares to each one of the members. We take an illustration, suppose there is an HUF having four members Q, R, S, T and one property P1 which has four equal divisible portions or flats say A, B, C and D. The four members may, under partition, agree that each one of the members Q, R, S, T should get one portion/flat in the property P1 say A, B, C, D, respectively, then by this defining/specification alone the partition as per section 171 of the Act will not be valid if they simply define/specify their shares that the members Q, R, S,T to get the portions/flats A, B, C and D of the property P1 as their respective shares of the property P1 but still all the four portions/flats A, B, C, D remaining joint as they have been so far without the portions/flats A, B, C, D, being actually physically divided/separated and thenceforth each of the members taking one portion of the combined total rental income earned from the whole compact property Pl. In the given illustration, for a valid partition under section 171 of the Act, the property P1 has to be actually physically divided into four separate portions in the manner that one specific portion of the property (separated) goes to the share of each member as per the respective defined/specified share allotted to him, say one specific portion P-1A goes to the share of Q, the second portion of property, P-1B goes to the share of R, the third portion of the property P-1C goes to the share of S and the fourth portion P-1D goes to the share of the fourth member R. But, the members Q, R, S, T, may also mutually so agree that Q takes half portions of the property comprising of P-1A and P-1B, R takes P-1C, S takes one portion P-1D and T takes no portion of this property P1 but takes only cash compensation in lieu of his share of the property P1 and thus the property P1 is actually physically divided into three shares only and the fourth sharer is not taking any portion of the property P1 but is taking only cash compensation from other member/members, then such partition, whereunder even though there were four members of HUF and one property P1 but only three divisions of property PI have been made and allotted to three members while the fourth member has received only cash compensation by way of his share of HUF property will be legally valid partition, acceptable under section 171 of the Act. Again, if the four members mutually so agree that the whole property P1 is given to Q as his share of HUF property and the remaining three members R, S and T do not get any portion of the property P1 but they receive cash compensation from Q, then this will also be a valid partition of HUF and its property and acceptable/recognisable under section 171 of the Act. Thus, the position of actual physical division or physical division by metes and bounds to be made implies that when the shares of members of HUF in the joint property have been defined/specified under the agreement/arrangement/award or scheme of partition, then in order that there may be a valid partition under section 171 of Income Tax Act, actual physical division of the joint property of HUF as per the defined/specified respective shares allotted to the members under partition agreement/arrangement/award has to be made and so divided separate shares to be given to the respective members, and without that there will be no valid partition. In other words, the actual physical division of property or physical division of property by metes and bounds has essentially to bedone to effect a valid partition under section 171 of the Act when defined shares in the HUF property are allotted to various shares or members of HUF under partition scheme, so that effect is given to that scheme of partition. However, if under partition agreement/scheme the members mutually so agree that they allot a particular property to one member Q only and the other members R, S and T agree to take cash compensation only, then if that property is given to one member Q, then that will also be a valid partition acceptable/recognisable under section 171 of Income Tax Act inasmuch as its actual physical division comprises in the whole of it being given to one member Q and no portion of it being given to any of the other members R, S and T; the essence of the expression 'physical division by metes and bounds' in the context of a partition under section 171 of the Act being that after partition the property should, in no manner, remain in jointness.
42. Coincidentally, we may also notice that it is revealed from record that'there were twelve coparceners whereas the said property at Khar, Mumbai, was a single house property consisting of a two-storeyed building and appurtenant land. Besides, the property was occupied by three tenants since 1930s and it had also been encroached upon by two encroachers. In the situation physical divisibility of the property by metes and bounds among all the coparceners as per their shares cannot be said to be an easy or convenient task.
43. In the instant case, we find that Mohanlal K. Shah as also the other members of HUF had been trying time and again ever since 1985 for effecting partition of the assessee-HUF and despite an agreement for partition having been entered into among the members on 7-8-1985, partition in respect of this property, that is, the property at Khar, Mumbai, could not be effected till the matter was referred to the sole arbitrator, Shri S.K. Desai, a retired Judge of Bombay High Court on 2-8-1994. It is revealed from record that the said arbitrator gave his award dated 24-9-1994 (p. 137 to 155 paper book). Vide the aforesaid award, the arbitrator allotted this property at Khar, Mumbai, to Harish B. Shah (para 10 on p. 144 paper book) and directed the other members to surrender and release their undivided right, title and interest in the said property in favour of Harish and, in turn, Harish to pay cash compensation to other members of HUF as specified in various clauses of para 11 of the award. In para 11(v) of the award the arbitrator has also provided that in the event of Harish being unable to pay the specified compensation amounts to other coparceners (members), he will be at. liberty to sell the said property to any third party but the sale will be subject to the charge in favour of other coparceners to the extent of unpaid amount of compensation. In para 11(ix) of the award (p. 150 paper book), it has also been provided that in case of Harish selling the property to third party all the coparceners will cooperate with Harish B. Shah and join him as confirming parties to the sale. This award has been accepted by all the parties (coparceners).
44. In view of the directions given in the award, other coparceners, that is, coparceners other than Harish B. Shah, were to join Harish B. Shah in the sale of the property as confirming parties and the reason for this seems that they had charge on the party in respect of their unpaid amounts of compensation. As such their joining Harish B. Shah in sale by signing the sale deed as confirming parties is in compliance with the directions given in the award and this fact does not detract from the position of there having had been a partition of this property among all the coparceners in accordance with the arbitration award dated 24-9-1994.
45. As regards the learned CIT-Departmental Representative's contentions that after the giving of award by the sole arbitrator, there ought to have been executed a further separate partition deed to give effect to the directions of the award including the reasoning of their released right/title/interest in the said property by the other coparceners', we are of the opinion that under law there is no requirement of any further separate partition deed after passing of an arbitration award inasmuch as a partition or a family arrangement can be effected by oral agreement as well irrespective of the value of immovable property involved; and what is further required under law is that the same should be implemented/executed or given effect to. Besides, in the instant case, the said award has been accepted by all the coparceners and has been complied with inasmuch as the said property of Khar, Mumbai, having been given to the share of Harish B. Shah, he entered into an agreement (MOU) with M/s Narad Builders and other coparceners for sale of this property by him (Harish B. Shah) as vendor to M/s Narad Builders as purchaser on 25-3-1995, and the competent authority accepting this issued NOC under section 269UL(3) on 15-5-1995, and in furtherance/compliance thereof the property was sold by him on 17-4-1996, as vendor to M/s Narad Builders (P) Ltd., the buyer, and the sale deed has been signed by Harish B. Shah as vendor and by other coparceners as confirming parties.
46. In (1999) 236 ITR 325 (SC) (supra), the arbitrator had created charge by award and the award was made rule of court on 24-11-1970. Recovery proceedings uhder section 220 of Income Tax Act, 1961, were continuing and the attachment by the TRO had been done earlier. In the circumstances the Hon'ble Apex Court held that the charge became effective only when the award was made a rule of the court and the attachment having been adduce earlier, the recovery proceedings were valid.
47. In (1974) 95 ITR 438 (Pat) (supra), arbitrator gave an award dated 1-1-1961, effecting divisions of immovable properties of HUF by metes and bounds. The award was not registered. Subsequently, the other than family business parties executed a partition deed on 2-2-1962, in accordance with the terms of the award and this deed was duly registered. It was held that even if the award by its own purported to partition the properties, and to allot the properties to the various parties, it could not effect any immovable properties comprised thereunder in the absence of registrations in view of section 49(a) of Registration Act. There was no recital in the award that the parties acted upon it on 1-1-1961. It was accordingly held that the partition tbok place on 2-2-1962.
48. In (1996), 58 lTD 23 (Chd) (supra), it has been held that since the partition deed was not registered and when the assessing officer passed his order, it could not be admitted as a piece of evidence.
49. In CEO v. Kantilal TrikamIal (supra), it has been held as under :
"Partition is really a process in and by which a joint enjoyment is transformed into an enjoyment in severalty. Each one of the sharers had an antecedent title and, therefore, no conveyance is involved in the process, as a conferment of a new title is not necessary."
50. In (1991) 190 ITR 131 (Del) (supra), partition of family took place on 23-3-1972. Due to delay in obtaining stamp paper, award from arbitrator was obtained on 2-11-1972. According to Tribunal, award was to be operative with effect from 23-3-1972, and the same was upheld.
51. In AIR 1988 SC 881 (supra) it has been held that a subsequent memorandum of partition embodying factum of partition was only a family arrangement and its registration was not necessary. It has also been held therein as under :
"Partition lists which are mere records of a previously completed partition between the parties will be admitted in evidence even though they are unregistered, to prove the fact of partition.
The true principle that emerges can be stated thus; if the arrangement of compromise is one under which a person having an absolute title to the property transfers his title in some of the items thereof to the others, the formalities prescribed by law have to be complied with, since the transferees derive their respective title through the transferor. If, on the other hand, the parties set up competing titles and the differences are resolved by the compromise, there is no question of one deriving title from the other and, therefore, the arrangement does not fall within the mischief of section 17 read with section 49 of the Registration Act as no interest in property is created or declared by the document for the first time.
Further it is also well-settled that the document though unregistered can however be looked into for the limited purpose of establishing a severance in status, though that severance would ultimately affect the nature of the possession held by the members of the separated family as co-tenants."
52. Assuming that the arbitration award requires registration in view of the provisions of section 17(1)(b) of Registration Act, 1908, though in view of the decision in (1976) 105 ITR 92, 101 (SC) (supra), the above position is not free from question mark', the provision of section 49 of Registration Act may be considered herein. The said provision is as under :
"49. Effect of non-registration of documents required to be registeredNo document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of contract in a suit for specific performance under Chapter 11 of the Specific Relief Act, 1877 (1 of 1877), (...) or as evidence of any collateral transaction not required to be effected by registered instrument"
53. We need be aware that in IT proceedings technical/strict rules of evidence do not apply though only general principles thereof do apply. Accordingly, the technical rule regarding exclusion/inadmissibility of oral evidence of terms of contract/grant/disposition of property when the same have been reduced to form of a document as contained in section 91 of the Evidence Act, 1872, will also not apply in proceedings related to assessment which though does apply in judicial proceedings in civil courts. Besides, the facturn of partition is distinct from the terms and conditions of partition or right/title/interest claimed thereunder which form part of the transaction of partition affecting immovable property. As such, arbitration award can be admitted in evidence in Income Tax proceedings or proceedings related to assessment to establish the factum of partition or to show that a partition has taken place. Similarly, the requirement of stamp duty on an award of arbitration, if at all required under section 34 of Bombay Stamp Act, as has been the contention of the learned CIT-Departmental Representative, it will not render the award excludible from being considered as evidence of the factum of partition as distinct from evidence for asserting/claiming right/title/inwrest in the immovable property under the award. As such, the arbitration award dated 24-9-1994, can be looked into in the Income Tax proceedings, for knowing the factum of partitions having taken place.
54. The arbitration award was rendered on 24-9-1994, and it stands accepted by all the parties, It is revealed from clause 18, the sale deed that a memorandum of understanding dated 25-2-1995, between the vendor (Harish B. Shah), the confirming parties (that is, coparceners other than Harish B. Shah) and the purchasers (M/s Narad Builders) was executed whereby the vendor agreed to sell to the purchasers who agreed to purchase from the vendor the said property on terms and conditions mentioned therein. Besides, even the department accepting the same, issued NOC under section 269UL(3) of the Income Tax Act on 15-5-1995 for sale of this property by Harish B. Shah, as vendor, As such, considering all the facts and circumstances, of the case as also the legal position and respectfully following the ratio decidendi of (1991) 190 ITR 131 (Del) (supra), we hold that the partition of the property at Khar, Mumbai, took place on 24-9-1994, the date of award, or in any case, on 15-5-1995, when the department accepted the abovementioned MOU dated 25-2-1995, and, in turn, Harish B. Shah, as vendor, and issued NOC under section 269UL(3) of the Income Tax Act.
55. As regards the assessee's two properties at Petlad, Gujaiat, bearing correct survey numbers 33 and 60, we find that some confusion due to some typographical error or otherwise seems to have crept in at the level of authorities below regarding survey numbers due to which they took 60 as 16. However, from the perusal oil para 37 of assessing officer's order under section 171 and para 12 of learned CIT (A)'s order, it is clear that the assessee's said two properties at village Salitra, Taluka Petlad, Dist. Karia, Gujarat, already stand sold away in financial year 1992, relating to assessment year 1993-94, and there is no evidence worth the name on record to hold otherwise, that is, that the said two properties of Guiarat still exist as assessee's joint properties.
56. Considering the facts and circumstances of the case, as also the relevant material on record, together with the elaborate contentions of the rival representatives, we find that the scheme of partition as put forward by the assessee does not seem to have sprung up from any sudden flash of thought of ulterior motive or to have resulted from any thoughtfully designed colourable device to evade tax. The facts, appearing from the material on record, reveal that the efforts for partition of this property were being made since as long back as 1985, when an agreement for family partition between B.M. Shah, Karta of HUF, and his brother Dr. R.M. Shah, was entered into, but, could not be acted upon. It is also revealed from record that Dr. R.M. Shah filed a suit in Bombay civil court against other coparceners and after mutual settlement, consent terms were filed in the civil court on 5-9-1985, whereupon consent decree was passed, which, too, could not be acted upon. It is also revealed of record that further differences/disputes arose among the coparceners when Dr. R.M. Shah expressed his desire to sell off his undivided share in the said property. It is in this background that the matter was referred to the sole arbitrator, Sri S.K. Desai, a retired Judge of the Bombay High Court to arbitrate among the rival contenders and sort out an amicable solution to the long standing partition dispute. The arbitration award dated 24-9-1994, was accordingly rendered by the said sole arbitrator, being of the stature of a retired High Court Judge. The arbitrator adopted the market value of the property at Rs. 9 crores, as per the valuation made by the architecture (Mr. Hari Moorgani) and gave his award (pp. 137 to 155 paper book) on 24-9-1994, with directions as contained therein. In these circumstances, we find no justification for holding that the scheme of partition, as devised through arbitration award, is a colourable device to evade tax so as to render the resultant partition as not acceptable under section 171 of the Income Tax Act, 1961, on the principle as enunciated in McDowell & Co. Ltd. v. CTO (supra). As seen above, the antecedent circumstances amply explain the fact situation leading to the partition scheme that has matured through arbitration award.
57. In the circumstances, we find that a complete total partition of assesseeHUF has taken place as on 24-9-1994, or in any case on 15-5-1995, which appropriately needs be accepted under section 171 of Income Tax Act, 1961, for there being no justifiable basis for not accepting the same; and, in turn, we find the orders of authorities below, in rejecting the application of assessee-HUF under section 171 of the Income Tax Act dated 19-4-2002, filed on 23-4-2002, to be not justified and not tenable. We hold and direct the assessing officer accordingly.
58. In the result, this appeal of the assessee is allowed.